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Lifetime Earnings Variability and Retirement Wealth

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Listed:
  • Olivia S. Mitchell

    (University of Pennsylvania)

  • John W. R. Phillips

    (Social Security Administration)

  • Andrew Au

    (University of Pennsylvania)

  • David McCarthy

    (Oxford University)

Abstract

This paper explores how earnings variability is related to retirement wealth. Past research has demonstrated that the average American household on the verge of retirement would need to save substantially more, in order to preserve consumption flows in old age. While several socioeconomic factors have been examined that might explain such problems, prior studies have not assessed the role of earnings variability over the lifetime as a potential explanation for poor retirement prospects. Thus two workers having identical levels of average lifetime earnings might have had very different patterns of earnings variability over their lifetimes. Such differences could translate into quite different retirement wealth outcomes. This paper evaluates the effect of earnings variability on retirement wealth using information supplied by respondents to the Health and Retirement Study (HRS). This is a rich and nationally representative dataset on Americans on the verge of retirement, with responses linked to administrative records from the Social Security Administration. Our research illuminates the key links between lifetime earnings variability and retirement wealth.

Suggested Citation

  • Olivia S. Mitchell & John W. R. Phillips & Andrew Au & David McCarthy, 2003. "Lifetime Earnings Variability and Retirement Wealth," Working Papers wp051, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp051
    as

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    File URL: http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp051.pdf
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    References listed on IDEAS

    as
    1. Olivia S. Mitchell & James F. Moore, "undated". "Retirement Wealth Accumulation and Decumulation: New Developments and Outstanding Opportunities," Pension Research Council Working Papers 97-8, Wharton School Pension Research Council, University of Pennsylvania.
    2. Olivia S. Mitchell & James Moore & John Phillips, "undated". "Explaining Retirement Saving Shortfalls," Pension Research Council Working Papers 98-13, Wharton School Pension Research Council, University of Pennsylvania.
    3. Mitchell, Olivia S & Fields, Gary S, 1984. "The Economics of Retirement Behavior," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 84-105, January.
    4. James F. Moore & Olivia S. Mitchell, "undated". "Projected Retirement Wealth and Saving Adequacy," Pension Research Council Working Papers 98-1, Wharton School Pension Research Council, University of Pennsylvania.
    5. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, "undated". "Pension and Social Security Wealth in the Health and Retirement Study," Pension Research Council Working Papers 97-3, Wharton School Pension Research Council, University of Pennsylvania.
    6. John F. Cogan & Olivia S. Mitchell, 2003. "Perspectives from the President's Commission on Social Security Reform," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 149-172, Spring.
    7. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1149-1187.
    8. John Y. Campbell & Martin Feldstein, 2001. "Risk Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number camp01-1, May.
    9. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
    10. Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, vol. 110(460), pages 1-26, January.
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    Cited by:

    1. Dalton Conley & Rebecca Glauber, 2007. "Family Background, Race, and Labor Market Inequality," The ANNALS of the American Academy of Political and Social Science, , vol. 609(1), pages 134-152, January.
    2. Thomas L. Hungerford, 2006. "The role of earnings and financial risk in distributional analyses of Social Security reform measures," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(2), pages 417-438.

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